Fear City: A Survival Guide for Visitors to New York City was distributed to arrivals at New York City’s airports in June 1975 by police unions in dispute with city leaders about cuts in emergency services. It warned them graphically of the dangers that lay in wait in an increasingly chaotic city being abandoned by both terrified residents and disinterested politicians.
The consequences of the COVID epidemic, the subsequent economic downturn and growing street anarchy and criminality across many US and some European cities have yet to stimulate dislocations of the kind seen in the US in the likes of New York in the 1970s.
However, there is emerging evidence of increased migration out to the suburbs and smaller towns and cities, which may or may not be permanent, but could have long-term consequences for businesses and therefore real estate owners across property types.
This has even led outlandish speculation about the beginning of a permanent decline for cities such as New York, San Francisco, London and continental European metropolises. A more considered view would probably be that the shock to the global economic system delivered by the spread of COVID-19 pandemic would most likely accelerate trends that were already in place prior to the outbreak of the virus.
Like many major cities across the world in the 1970s, New York was in decline. Jobs left for lower wage, lower tax and less regulated locations. Rising crime and declining public safety were part of a wider pattern of urban decay in other major cities in North America and parts of Europe as affluent households migrated to suburbia.
In 2020, COVID has affected metropolitan areas from Madrid to Manhattan especially hard, with residents confined to their homes in often densely packed neighbourhoods. There have been signs of migration away from large cities, especially in the US. Commuters have stayed away from offices, adapting successfully to working from home, and contributing to the desolate street scenes in the early summer.
Echoes of 1970s Fear City were reinforced during the summer as crime rose. New York City has seen a 23% rise in murders in 2020, while gun incidents were up by 46% and burglaries up 118% (Source: NYPD Crime Stats, June 2020) Meanwhile, threats to the funding of police departments have reinforced concerns that public safety could deteriorate in cities.
Fear City Pamphlet
The high cost of living, fears about personal safety and the impact of the virus caused residents and companies to reappraise where they wanted to be based. A Pew Research Center survey in early June found that 3% of those polled in the US had moved temporarily or permanently because of COVID-19 (Source: Bloomberg).
A Harris poll showed 40% of residents in the US were considering leaving their city. Predictions of a mass exodus may have been exaggerated. A more recent poll showed only 26% of urban dwellers were likely to move (Yahoo-Finance, Harris; 3 August 2020).
Large mega cities such as New York and Los Angeles were seeing outflows before COVID, with the pandemic perhaps accelerating decisions, particularly as the demographic composition changes. Even London saw its slowest rate of population growth in the last 12 months.
However, migrating to the suburbs is not unique to the COVID-era, as figures show 341 000 people left London in the 12 months to June 2018 (Office for National Statistics (ONS)).
Demographic change has been a notable factor in driving demand in Suburban locations. In the US, the largest working age demographic, the millennials, are now approaching 40. In addition, those 30-something households are having families and looking for a change of lifestyle away from high cost, high-density urban locations.
The demographic curve may be less pronounced in many parts of Europe, but maturing younger households in urban locations appear to be looking for a lifestyle change that embraces their home as well as their workplace choices.
The Harris Poll suggested young people aged 18-34 were considering leaving the city, with a much lower figure for older Americans. However, before the pandemic, there was already a movement from larger urban areas to smaller towns and cities. For the future tax base of US cities it is worrying that higher earners were twice as likely to want to leave as people were on below-average incomes.
Clearly, it’s premature to predict the demise of cities such as New York, London or San Francisco, but the longer the pandemic shapes lives, the more adapted to working from home and the less safe people feel in urban settings. This will affect on the attractiveness of urban life.
Moreover, working from home could markedly change the ways companies operate and where staff are located. Obviously, declining demand for housing and commercial space in markets that are already dealing with excess supply will have significant implications for urban property owners, including public listed real estate companies.
Even prior to COVID, larger conurbations were losing residents as millennials aged and moved away. However, the summer has also focused attention on other aspects of urban life such as cost and, increasingly, security and personal safety. COVID could be accelerating a secular trend away from large, expensive, urban areas to smaller, cheaper, and safer environments.
However, when there is a resolution to the health crisis, and people begin to drift back to previous patterns of working, the demographic trends that have been in place should be less painfully felt by urban property owners.
What has historically attracted people to cities such as London, New York, and the conurbations of California is likely to return post-COVID.
As one US REIT (real estate investment trusts) company reminded me, businesses and people have been leaving the US coasts for more than 40 years as coastal politicians have done their best to frighten away residents and commerce. However, the incredible fundamentals and unique business ecosystems of these cities make up some of the largest and most diverse economies in the world, and therefore should continue to attract young talent and great businesses.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Investments in the aforementioned fund are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment. Source: BNP Paribas Asset Management.
UCITS OFFER NO GUARANTEED RETURNS AND PAST PERFORMANCES DO NOT GUARANTEE FUTURE ONES